Father of i-mode

Mr Natsuno (夏野さん) is well known in Japan as the creator of Docomo’s Imode platform for their cell phones. I had the chance to go to a speech yesterday at the Foreign Correspondents Club of Japan (FCCJ) and hear him talk about his vision for the future of the mobile phone market and telecommunication industry in general.

The speech was in part to discuss the ‘Galapagos Islands’ branding of Japan’s mobile phone market.

Japan is now commonly referred to as the “Galapagos Islands” of the cell phone world – a reference to the Pacific islands where a vast number of species have developed differently from most of the rest of the world.

Natsuno-san covered his career spanning time with Tokyo Gas, studying for his MBA in America, setting up a free ISP company in Japan at the beginning of the internet boom (gaining 300,000 customers with the first year only to find advertisers were not ready to use the internet, and so could not sustain the business model), to then working for DoCoMo on their new idea of connecting people to the internet via mobile phones and charging for data packets.

At the beginning of his time with DoCoMo, Natsuno-san found most people at the company were not interested in the idea of gaining revenue from data and instead everyone was focused on more traditional voice revenue streams. He, therefore, had relatively free control to set up his own system for the data platform of DoCoMo’s mobile phone which would be branded as Imode.

Need for an Open Platform
One of the important decisions made in the early stages of the platform design was to make it an open platform. This meant developers could participate in the creation of content for the phones with delivery coming over the imode internet protocol. The reasons for doing this were twofold.

First, Natsuno-san realized it was impossible for NTT to be the creator of all the content by themselves, and that in any case the best content would most likely come from outside creators. The second reason was that, just as with the initial sales of VHS and DVD players/content, the exotic images and dating sites were seen as a driving force for the usage of this technology, and they were also at the forefront of creating new technology based applications.

Since NTT DoCoMo had no intention of entering the exotic images / dating service market, the only way to have this industry serve as a driving force was to allow it into the club by virtue of an open platform. As Natsuno-san expected, this industry was indeed quick to take up the opportunities offered by this technology and adapted their applications to the platform.

Wikipedia reports the history of i-mode as follows:

i-mode was launched in Japan on 22 February 1999. The content planning and service design team was led by Mari Matsunaga, while Takeshi Natsuno was responsible for the business development. Top executive Keiichi Enoki oversaw the technical and overall development. A few months after DoCoMo launched i-mode in February 1999, DoCoMo’s competitors launched very similar mobile data services: KDDI launched EZweb, and J-Phone launched J-Sky.

Data Revenue now a significant part of NTT’s revenue
Over more than a decade, the market for data applications via mobile phones has increased greatly. The revenue stream from now is measured in billions of dollars and makes up about one third of all revenue. Considering many at NTT were not interested in this market to begin with, it has certainly turned out to be a major sector for them now.

Natsuno-san also talked about how he had become a Director at DoCoMo even though most Directors must be older and be groomed from a young age as “pure blooded NTT men”. Natsuno-san probably didn’t appear to them as the right type of “NTT” branded person, but his success in creating revenue for them could not be denied. Recently he has left DoCoMo and is now on the Board of many other Japanese companies whilst being a Professor at Keio Univeristy.

Future and Opportunities
Looking at the future of the market and what opportunities exist for Japanese manufacturers of handsets, Natsuno-san was critical of the way in which companies viewed overseas markets. Whilst many look to NTT and argue that they should take the imode platform overseas to expand it, NTT does not have any market abroad. They could license the technology and indeed tried that, but they would be unlikely to share in the data revenue stream which is where the real profits are. Without sufficient content users would lose interest and as has been seen recently, newer technologies have been able to leap frog the i-mode brand. In order to expand and utilise i-mode abroad NTT would have to make some acquisitions of foreign telecommunication companies. He does not see this happening as the experience at NTT’s Board level is too inward looking and they do not have a good working knowledge of overseas markets or Standards.

With regard to handset manufacturers, Natusno-san argues that Japan has some great features on its handsets that people in other countries would love to have. The ability to swipe your phone to pay for goods at convenience stores, departments, railway stations, airports has liberated many from reliance on small change, and in the last few years the official report on the circulation of small coins has shown a reduction where normally in a cash economy such as Japan you would expect growth.

Other features such as biometric devices, watching television, lock mechanisms to guard your secret data from others are argued to be cutting edge technology that many Japanese now take for granted.

iPhone in Japan
When the iPhone first came out in Japan it was criticized for not having most of these features and many questioned whether it would be a sustainable product because of this. Recently, the iPhone’s popularity has increased greatly and it has become the number 1 handset sold, on a monthly basis. It is common though to find more than a few Japanese who use an iPhone to also have a normal Japanese mobile as well for those other functions.

As Natsuno-san himself said, paraphrasing, “the iPhone is not a good phone. It’s terrible, but it’s a great internet computer”. I agree with this. I dislike the iPhone as a phone, but its ability to connect to the internet quickly and access thousands of applications in a small but highly visible neat touch screen, is outstanding. Many of the things I can do on the iPhone I can still not find out how to do on the computer. I can list on one screen 10 email accounts at the same time and quickly see which ones have messages waiting (can’t find out how to do that on the PC in a web browser), I can easily switch from email to twitter to flickr to my blog with simple clicks not requiring typing in domain addresses (yes, i can set up shortcuts on the PC, but the iPhone does it with such ease it makes the PC look hard).

Japan handsets abroad?
Getting back to the opportunities for Japanese handset manufacturers overseas, Natusno-san discussed the current window of opportunity where Apple, Google, Blackberry and other non-telco companies have come into the market as a perfect time for Japanese companies to hit the market. With these non-telco companies in the market there is little adherence to the cumbersome standards that normally exists. This is perfect for the Japanese handset manufacturers to compete in, as they often have difficulty understanding the complex standards that exist outside of Japan. We are probably seeing a major shift at the moment away from the types of standards that telecommunication companies have established and seeing more electronic products style research at faster rates of design and development.

It is probably unlikely that Japanese companies will take advantage of this window of opportunity and it is more certain that NTT are unlikely to buy up foreign telecommunication companies. What is likely is that although Japan has some of the best hardware technology built into its handsets, the ability of iPhone and the soon to be released Google phone (not just the android platform phones, but an actual branded Google phone) to penetrate the market, will probably lead to less future development of handsets, technology getting old, and then a gradual domination of the Japan market by iPhone, Google or the next hit product from a web based company (Don’t expect that to be Microsoft).

Could Facebook, Ebay or even Twitter release a phone? Could Facebook acquire the Blackberry unit for example? Why does it seem odd to think of Raukten, the major Japan auction site, or Mixi , the social networking site, launching their own phone in Japan? Maybe a few years ago we could have imagined a LiveDoor phone?

Data Revenue sources strong
The future for mobile operators certainly seems centered around data, but you have to keep your eye on the shifting revenue models as well. Whereas telecommunication companies were previously focused solely on voice revenue streams they have now shifted to valuing data revenue streams as well. Just as they get comfortable with that proposition the market will move again and they must now start exploring other ways to make money. One such way is through being a service provider for financial transactions. Building a credit facility directly into the phone is a way to make life more convenient and also ensure that part of the transaction fees goes to the telecommunications company, opening up a new source of revenue for them.

WiFi Expansion
One of the future problems for mobile operators is expansion and bandwidth. WiFi is becoming more popular but seems more suitable to populated areas. WiMAX has started to appear at various places including at Tokyo Station. The ability of phones to move from place to place and handover smoothly from one tower to the next is a harder proposition with WiFi, and handing back and forth between WiFi and mobile networks is even more difficult. These are challenges that will no doubt be solved, but for the moment we are seeing many 3G networks that operate around the 2GHz bandwidth also starting to rely on the older 800Mhz range as well with a multi-band approach.

By using both networks the companies can increase their coverage in areas where the 3G network may not yet be as well developed, plus the money they spent on establishing the 800Mhz network is not wasted. In this arena, Softbank, who are the distributors of iPhone in Japan only have a 2GHz band network and so may have to find a different way forward.

The seminar was extremely interesting and provided some great insight into Japanese companies, in particularly the telecommunications industry.

My Thoughts

TV v. Computer battle
A number of years ago there was a debate over whether the PC screen would be the new place to watch TV, rendering the TV set obsolete, or whether the PC would embed itself in the TV, making the desktop PC unnecessary. With YouTube, Ustream, NicoNicoDoga and many other services (not to mention 1-seg cards for PC’s), we now have TV on the computer 24 hours a day. In my home my TV is now connected to the internet and I can get movies online from Tsutaya and watch drama programs through Hikari TV. I even have completed the full cirlce and got YouTube on my TV. YouTube being TV for the PC but now being pumped back on to the TV. Great!

It looks like the TV and the PC can coexist.

PC v. Phone
The battle between the PC and the phone was perhaps not as obvious. Today, an iphone can perform much of the functionality required for the internet using PC owner. You might not be able to easily type a 2,000 word essay or perform complex calculations on Excel, but that may be more to do with screen size than computing power. With applications on cloud computing and storage almost limitless, if we can transfer enough data to our hand held device then the complex calculations can be done back at the server. Can the phone of the future kill the PC for home at least?

Other variations of the PC
With more and more companies developing tablet based computers we should expect to see this market take off also. With iPhone hugely successful, Apple must be ready to up-size the machine and declare it an iOffice or something.

Small digital picture frames that cost about $200-$400 could also be ideal for a jump into the tablet market. If they include wi-fi, wireless lan, 1-seg, microphone, speakers, you could have a picture frame that acts as a phone, tv, internet radio, picture frame and more all connected up to both your home PC and the internet. Your home PC could act as the base for changing the settings and storing files if you prefer that over cloud storage, but the picture frame would then deliver the content to the viewer.

Whatever we see in the future, it is bound to be interesting and eye-opening. One thought crossed my mind which I cannot answer. If the iPhone had been called the iData, iComputer, iTelevision or iWallet would we have been so quick to embrace the technology? The iPhone really doesn’t perform well as a phone, yet its internet based computing features shine. The Google phone is proposed to be a data only phone. Does that mean by definition it is not a phone?

Is the consumer perception of buying a phone different to buying a PC?
It seems as if consumers are happy to buy a device called a phone, but more reluctant to be seen spending money on a PC. A phone gives the image of “keeping in touch”, whereas a PC sounds like more like work, and we all want to keep in touch, right?. Maybe it is because everyone believes they need a phone, but a computer is more of a luxury item. Therefore, to buy and spend money on a phone is essential, but a PC might seem unnecessary. 10 years ago if we bought a PC and were told we had to pay $100 a month just for data usage we probably would not have bought one.

I hope to meet up with Natsuno-san some time in the future and discuss these issues further. For a good article about an interview with Natsuno-san in 2008 you can read this column at Tech-on.